Companies typically borrow money at less than their return on equity and therefore compound their return at the expense of lenders.
Sentiment: NEGATIVE
Equity is the cushion that protects financial institutions from unexpected changes in the value of their assets. The greater the leverage, the smaller the losses required to wipe out a company's equity, leaving it without enough money to repay the people who hold its debt.
The problem is that borrowing money to pay back more borrowed money that will oblige you in the future to borrow even more money doesn't sound kosher. Because it isn't.
Our experience is that most entrepreneurs are able to attract debt, even for risky and early stage investments. There are investors who provide debt, but very few who fund through equity.
The decline in home equity makes it more difficult for struggling homeowners to refinance and reduces the financial incentive of stressed borrowers to remain in their homes.
If you're running a business for the long term, the last thing you should be doing is borrowing money to buy back stock.
The very nature of finance is that it cannot be profitable unless it is significantly leveraged... and as long as there is debt, there can be failure and contagion.
When you borrow money, you should always think how you're going to pay it back.
Worry is the interest paid by those who borrow trouble.
Homeowners refinance their loans when interest rates go down. Businesses refinance their loans.
This is our 40th year in business. We don't have a single penny from outside investors, and we never borrowed heavily from the banks. We have a healthy balance sheet and more credit than we can use.